Five Takeaways From the Latest Housing Starts Report

Housing bears and housing bulls each had something to boost their spirits in Thursday’s report on new-home construction. Housing starts fell by 16.5% in April to their lowest level since last November, but as is often the case, the headline number masked a few important nuances. Here are five takeaways:

1.The April drop was due primarily to the often-volatile multifamily sector. Starts of single-family homes fell by 2.1% from March’s level, and stood 20.8% above the year-earlier level. Multifamily construction, which had posted a 26.9% gain in March from February, posted an even larger 37.8% drop in April from March. The drop-off in multifamily construction should, for the moment at least, ease fears of an apartment-construction bubble.

2.Permit activity was strong. This is important, both because permits are subject to less jarring revisions than housing starts, and also because permit activity is a fairly reliable indicator of starts. Permits jumped to their highest level since June 2008 at a seasonally adjusted annual rate. Single-family permits rose to their highest level since May 2008.

3.The slowdown in single-family home construction isn’t necessarily a slowdown in the housing market. The seasonally adjusted annual rate of 610,000 units in April, is the lowest level of the year, but rather than signal a drop in demand, it could instead reflect supply and cost pressures facing builders, as rising land, labor and materials costs eat into their margins. Some home builders have said they’re building in fewer communities—putting up fewer homes—in order to boost prices. If there’s a negative in today’s report, it’s that the inventory crunch in many markets isn’t going to subside as long as builders don’t build more homes.

4.If starts are low, and inventory stays tight, there could be more room for price gains this year. At the beginning of the year, some analysts believed that inventory of homes for sale could pick up amid a rebound in home construction and higher prices that induced more homeowners to sell. While there are some signs of the latter, the inventory pressures haven’t eased much in many of the most constrained markets. This means prices could continue to rise.

5. The upshot is that Thursday’s housing report isn’t as much a signal that the sector is cooling—at least not until there are a few more of these reports—and instead a sign that the housing rebound isn’t going to unfold in a straight line.

Is Generation Y a ‘Game Changer’ for Housing?

Generation Y’s preference for downtown living could alter the future of housing development, a land-use association says.

Many housing observers agree that Generation Y—people from 18 to 34 years of age—largely prefers downtown living, often in rental apartments with easy access to walkable neighborhoods and public transportation.

The real question is whether they’ll outgrow those tastes once they earn higher salaries and have kids.

The Urban Land Institute, or ULI, the land-use association that long has championed dense development over sprawl, this week plans to release the results of a survey of generational housing preferences, highlighting those of Generation Y. The survey, to be released at ULI’s spring conference in San Diego on Wednesday, polled 1,202 U.S. adults from Jan. 16 to Feb. 3 of this year.

ULI heralds Generation Y, with nearly 80 million members, as a potential “game changer” in the U.S. real estate market (they are also known as “Millennials”). Of survey respondents in that age range, 59% said they prefer their neighborhood to have a variety of housing types; 62% favor mixed-use developments with shops, restaurants and offices; and 52% like pedestrian-friendly neighborhoods.

In addition, 55% of Generation Y respondents said close proximity of their home to public transportation is important. The survey found that Generation Y is more likely than older generations to live in apartments and in downtowns, with 54% favoring renting and 39% favoring city living.

The thing is, while Generation Y is the most likely to move to new homes in the coming years, they’re also the most likely to go through significant life changes. Few have yet reached their maximum earning potential. And many haven’t had children, meaning they’re probably not yet focused on the quality of schools near their homes.

Patrick Phillips, ULI’s chief executive, said he suspects Generation Y is different than previous generations in that it won’t fully shift later in life to living in suburban, single-family homes. He noted that one early indicator of the longevity of Generation Y’s tastes will be apartment vacancies in the wake of the construction boom of recent years. Rising vacancies will hint that younger people are buying homes, perhaps in the suburbs. Minimal vacancy will indicate that they prefer to keep renting.

If Generation Y’s preference for compact, urban homes endures, it will result in more mixed-use development, Mr. Phillips said. “Over time, we’ll see a return to a more compact, metropolitan development pattern,” he said. “We’ll see less sprawl at the edges, the market preferring solutions that are closer in.”

Not everyone agrees with that theory. Robert Burchell, a professor of planning at Rutgers University, says that Generation Y, and even Generation X of 35 to 47-year-olds, have substantial personal debt on average and haven’t reaped the massive home-value gains that older generations did in previous booms. Thus, many younger adults likely are renting out of necessity rather than preference, he said.

“Generation X and Y cannot afford to buy the houses of the baby boomers,” Mr. Burchell said. “It’s not like this is a new generation steeped in money, ready to take on the world and has now declared ‘urban is our location.’”

Wendell Cox, a transportation consultant and demographer based in Belleville, Ill., says his analysis of census data shows that 76% of the growth in residents from 20 to 34 years of age from 2000 to 2010 came in low-density, often suburban counties.

A random selection of two Generation Y members by Developments found that neither exactly fit the results of the ULI survey. Ping Shi, a single, 23-year-old financial services consultant, recently bought a 2,500-square-foot house in south San Francisco with her parents for $750,000. She anticipates moving to the suburbs later in life.

“In my 20s, I definitely want to live downtown; I like the whole high-rise, in-the-city feel,” Ms. Shi said. “But, definitely when I have children, I want to live in a single-family home. It’s easier for parking, transportation and it’s safer to live in the suburbs away from the city. I definitely want a back yard.”

Caroline Tinsley, a 26-year-old communications specialist for an electric utility, rents a two-bedroom apartment in the Austin suburb of Bee Cave, Texas. She anticipates buying a single-family, detached home in her 30s. “I don’t want to be in the suburbs, but I don’t necessarily want to be right downtown,” she said. “I lived in the central urban area of Austin for four years, so I feel like I have that out of my system.”

Reverse Mortgages: 10 Things You Need to Know

Editor’s note: This guest post was written by Matt Allen of North American Savings Bank.

Sometimes people reach retirement and discover that, for whatever reason, they just don’t have enough money put away. If you find yourself in a similar situation – and you’re a homeowner age 62 or older – a reverse mortgage may help you take advantage of the resources you already have in place. You may ask yourself, “What is a reverse mortgage?.” Reverse mortgages are FHA-insured loans that can help you maximize the equity in your home so you can live a more comfortable retirement.

Here are 10 things you need to know about reverse mortgages.

1. Reverse mortgages are approved by the FHA

Also known as Home Equity Conversion Mortgages (HECM), reverse mortgages are insured by the Federal Housing Administration (FHA). They are not a wildly inventive financial instrument, but rather a loan product designed specifically for older adults. Reverse mortgages are a federally-approved mortgage product, and as such have regulatory requirements and oversight to insure borrower safety and protection. Learn more.

If you currently have a mortgage on your home, a reverse mortgage can be used to pay off the remaining balance. A reverse mortgage has no monthly mortgage payment because the loan (both principal and interest) is paid in full once the home is sold. The amount you owe grows over time as the interest accrues based on the outstanding balance. There is no requirement to pay on the loan until you vacate the property. You can analyze your current scenario by using a reverse mortgage calculator.

3. You can use a reverse mortgage to purchase your primary residence

If you’re able to pay the difference between the reverse mortgage proceeds and the sales price of your new home, you can use a reverse mortgage to purchase a primary residence. This allows you to downsize your current home, move closer to your family or find a home that meets your physical needs. You won’t have a monthly mortgage payment as long as you remain in the home.

4. You retain title of your home

Not the bank, not the lender, no one but you. The house is yours and remains yours as long as it remains your principal residence for at least six months a year, and you continue to pay your real estate taxes, homeowner’s insurance and maintain upkeep on the property.

5. The loan isn’t due until you stop living in the home

A reverse mortgage isn’t due until the last surviving borrower passes away, sells the home, or fails to live in it for 12 consecutive months. (This assumes taxes and insurance are current, and the property is properly maintained.) A reverse mortgage loan must be paid off once the home is sold. Any excess balance from the sale of the house is yours (or your heirs) to keep.

6. You choose how the money is distributed

As a lump sum, as monthly payments, or as an ongoing line of credit, the choice is yours. Some folks can use the extra monthly income; some just prefer a line of credit to have accessible for emergencies. A reverse mortgage can be paid out in whatever way best suits your needs. Additionally, there are no restrictions on how you use your reverse loan proceeds: it’s your money, you can use it however you see fit. An online reverse mortgage calculator allows you to compare different scenarios.

7. The money you receive from a reverse mortgage is normally tax-free

Reverse mortgage loan proceeds are generally not considered taxable income and will not affect Social Security or Medicare benefits. However, your monthly reverse mortgage advances may affect your eligibility for some other programs. Consult either your tax professional to determine how, or if, monthly reverse mortgage payments might affect your eligibility for benefits to which you are entitled.

8. There are no mandatory repayments

A reverse mortgage doesn’t have to be repaid until you vacate the home; should you choose to repay early, there are no pre-payment penalties.

9. And what if your home appreciates in value?

Again, when you sell the house and the reverse mortgage is paid off, any excess balance is yours or your heirs to keep. A home that appreciates in value just gives you more money in the end.

10. But what if the value of your home depreciates?

As long as you continue to occupy the home as your primary residence, pay the appropriate taxes and insurance, and maintain upkeep, there shouldn’t be a concern. Should the home, when you decide to sell or leave it, be worth less than the outstanding loan amount, its sale fulfills the debt in whole; FHA mortgage insurance satisfies any difference.

So how do you qualify?

There are some basic requirements to obtaining a reverse mortgage.

All individuals on the title must be at least 62 years old.

The property must be your primary residence; you must live in the property at least six months or more every year.

You must own your home free and clear, OR your current mortgage must be paid off with the proceeds from your reverse mortgage.

Educational counseling with a HUD-approved counselor is required.

You cannot be delinquent on any federally-insured debt.

You are still responsible for property real estate taxes and homeowner’s insurance.

In general you probably want to earn wealth on real estate based on risk you are taking, while minimizing the amount of time you need to spend attending to the property. In order to accomplish this, you need to make some smart choices upfront when buying investment property. Your goal should be to strive to get as close as possible on as many of these optimal scenarios as possible:

Pays a Fair Cash-on-Cash Return

When you buy property you are taking money out of your liquid financial assets – stocks, bonds, CDs – and investing it into a very illiquid asset – real estate. You were earning a rate of return on your financial assets, such as 4 percent or 6 percent, and you should strive to earn a fair cash-on-cash rate of return on your real estate. To do this, you need to pro forma your deals and buy cash flow-positive properties that earn you decent returns – not those prize properties that are negative, negative, negative. For more guidance on this, see Smart Investing – A Tale of Two Townhomes.

Isn’t Too Risky an Investment

All real estate is extremely high risk. Development of real estate, land, Tenant-In-Common (TIC) investments, private real estate funds, fixer uppers, etc., all have much higher risk profiles than just simply buying a nice established cash flow investment property. In many of those investments, you will never see a dime of your money again because there are just so many things that can go wrong! So if you want to own real estate, consider simply taking fee simple title in your own name – or an entity you wholly own – to the properties you purchase. In addition, you must do the proper due diligence, analyze, test, review reports, etc., to make a lower risk real estate decision.

Doesn’t Require a Lot of Time or Managing

Some properties just require way too much time and management to make them smart investments. Examples include vacation rentals, low quality properties in bad areas, college rentals, etc. Nice boring properties rented for as long as possible to decent credit profile tenants seem to take the least time to manage. In addition, treating your tenants fairly and with respect goes a long way towards keeping good relations with them; and reducing your hassles when there is an issue you need to address. And believe me — there will be issues!

It’s the nice, boring, wholly owned, in good shape, cash flow-positive properties that are the best investments. They are out there for your picking, but it’s not as simple as finding a property on the MLS and buying it.

You need to do some hard work, research, read up, and make smart, educated decisions to acquire the best real estate investments!

If “return on investment” (ROI) is why you bought a home, or why you’re remodeling one, you can stop reading now. Because the rest of this article isn’t for you.

Three, two, one…still here?

You invest in your home to improve livability first, not value. If you get more value in the process, consider it a bonus, but don’t make ROI your prime directive.

Otherwise you’ll end up like the potential client that came into my office a few years ago with a three-page single-spaced typewritten (as in made with a “typewriter”) list of things he wanted in his house.

His list included this line: “A large dining room, near the kitchen. Although we don’t need or want a dining room.” Why would he want to build a room he didn’t need?

Because he’s thinking of things to make the house valuable, instead of things to make it livable.

So let me rephrase the remodeling-ROI question this way: what are some cost-effective ways to improve the livability of your house?

Here’s my short list:

1. Walk-in pantry instead of kitchen cabinets

Kitchen cabinets are expensive. Half of them are up high on the wall where they’re hard to reach, and the wall space they take up could be better used for windows. A pantry takes up less space, stores a lot more, is much easier to use, and costs less to build.

2. Comfortable shower instead of big bathtub

My firm does a lot of work in late-70s/early-80s neighborhoods that are loaded with huge tubs. We’re taking them all out, one at a time, and replacing them with comfortably-sized showers (not the racquetball-court sized ones you see in home shows) that people actually use every day.

A shower takes up less space, uses less hot water, and is far more sanitary than a big tub.

3. Group windows together facing best views instead of scattering them around the house

Got a great view somewhere? Bring it into the house with lots of glass. Take excess windows from bedrooms and baths and use them to connect the inside of the house with the outside.

We once remodeled a house on the coast of Lake Erie that had one window – one – facing the lake. Hey pal, did ya notice the Great Lake in your back yard?

4. Keep ceiling heights reasonable for the room size

“Volume” ceilings do not automatically make better rooms. They just make taller rooms. Rooms that are harder to decorate and more expensive to heat and cool. Instead, focus attention on a view, a large fireplace, or other element and away from the ceiling height. Use wall trim and multiple paint colors to break up the volume of the room and create the illusion of height.

5. Spend more time planning, and less money building

I toured a client’s existing home before we began designing the new one. “Of course,” she said as we peeked in on the kids’ rooms, “these bedrooms are way too small.” Really? I thought. The smallest was probably 14’ x 15’. But each bedroom had at least one door or one window on each wall.

Pretty, but the design left little room for furniture.

I suggested we more carefully design the new bedrooms – keeping the furniture placement in mind. In the end, we were able to easily accommodate each child’s bedroom furniture comfortably in smaller bedrooms than what they’d had before.

6. Consider the simple elegance of the box form house

Subtlety and restraint used to be virtues in home design. These days, far too often, inexperienced designers attempt to attract attention to their homes by adding more stuff… more gables, more materials, more bays, etc. Others know that proper proportion, scale, and details are what turn heads.

The simple box house is a classic American form that’s survived 150 years of stylistic changes. Greek Revival, American Four-Square, Tidewater Georgian…all simple boxes. Great proportions, great details…done.

7. Share part of the master bath

This isn’t for everyone, but it really tightens up the budget and the floor plan. Make the toilet and a sink in the master bath accessible to the rest of the house, instead of building a separate half bath – it won’t be used much by you during the day, and rarely by guests at night.

Why have two baths when one will do?

8. Spend it when you have it, not before

Sure, it’d be great to have those granite countertops now, but your budget’s tight and granite is ten times the cost of laminate tops. So how about putting in nice laminate tops now, and replacing them with granite in five years when you have the cash? You can easily do the same with light fixtures, flooring, window treatments…

9. Compartmentalized bath – two baths in the space of one and a half

Each kid doesn’t need his/her own bath, but they do need privacy and room to share. A compartmentalized bath puts two sinks in one room and the toilet and tub/shower in another – so three kids can use the bath at once and keep a little more harmony in the family home.

I doubt any of these ideas will ever make a magazine’s list of “Best Remodeling ROI” projects. But every one saves you money over a more “conventional” design strategy, and every one increases the livability of your home.

Tips for Living in a Staged Home

Model homes make us dream about living there, but living in your own home while it is being staged is tougher than it looks. The key is to easily contain and hide your personal items – not just to showcase your home better, but also to keep your personal life, well… personal! Below are a few tips for homeowners who are living in their staged home while it is on the market.

Kitchen

In the kitchen, keep the countertops and sink clean. It is fine to have 1-2 appliances that remain on the countertop, assuming there is ample space and they are in good condition. Try to get in the habit of keeping dirty dishes out of the sink by either washing the dishes or placing them in the dishwasher immediately after use. Ideally, the counter dish drain should be hidden from view, but as long as it is neat and not bulging with dishes, it can remain on the counter during showings. Keep that pantry clean and neat as well. And, yes, expect that buyers will open doors to kitchen pantries, so prepare accordingly.

On the kitchen floor, reduce the number of scatter rugs to ONE in front of the sink, preferably in a solid color, and toss all of the others. Too many rugs in all types of patterns can make the floor look like it needs work, even when it doesn’t!

One more thing about kitchens – cooking! If you tend to cook with lots of spices, fry often or prepare foods with heavy scents, have a plan to neutralize the scents immediately afterwards. There are easy ways to do this like boiling a few sliced lemons on the stove or leaving out cups of white vinegar to absorb the scents and odors overnight. It is important that your home smells fresh for prospective buyers and not like last night’s meal.

Bathrooms

Remember living in college dorms and sharing bathrooms, which meant having to tote bathroom items to use in the dorm bathroom? Yep, it’s time for the bathroom tote to make its return to keep the bathrooms neat. Give each family member a tote to store their toothbrush, toothpaste, wash cloth/hand towel and all creams, gels, sprays and makeup that normally lives on the counter around the sink, tub and/or shower. Use the tote to store items under the bathroom sink, in closed door bathroom cabinet or linen closet, thereby keeping the bathroom countertops free from personal items. Start using the totes daily – it will save you lots of time and worry.

Bedrooms

Most of the clutter in the bedroom is found near nightstands and closets. To help remedy the clutter, hide items in a closed cabinet or nightstand. Or, purchase a basket with a lid that will slide easily under the bed. Place all of your bedroom clutter in the basket – tissues, reading glasses, pens, journals, gels, creams, etc. You can leave 1-2 books on the nightstand with your lamp and alarm clock but anything personal should be hidden from view. It also goes without saying that you should make your bed EVERY DAY once you rise to keep your bedroom looking its best.

Family room

Closed storage can be your best friend in keeping your family room neat. Keep children’s toys and play items in a cabinet, basket or storage ottoman, for easy containment during a quick showing. Reduce the stack of magazines on the coffee table to 1 -2 latest issues, along with your remote. Routinely sort the mail as it comes in. Mail that needs a response is immediately stored in a drawer or basket; junk mail is immediately tossed. It will help you keep your family room, kitchen or office area neater and keep wandering eyes from your personal items, too. If you are still receiving the daily newspaper, don’t keep yesterday’s issue on the coffee table, move it to recycling area in your home on a daily basis.

As you will quickly learn, living in a staged home is not easy, but it is manageable. The key is to change you and your family’s behavior daily, rather than trying to “clean” when you get the call that a showing is happening in 15 minutes. It will make those showings feel less intrusive and the perfect buyer will walk right in and fall in love with your well-kept home!